INVESTMENT SECTION

Report on Investment Activity (continued)

Asset Allocation (Excludes Collateral on Loaned Securities) As of 9/30/11 Actual % 28.5 % 12.4 22.7 10.4 15.1 6.3 4.6 100.0 % Two-Year Target % 33.0 % 16.0 14.0 9.0 16.0 10.0 2.0 100.0 %

Investment Category Domestic Equity Pools International Equity Pools Alternative Investment Pools Real Estate Pool Fixed Income Pools Absolute Return Pools Short Term Investment Pools TOTAL

INVESTMENT AUTHORITY

Pursuant to State Law (Section 91 of Act No. 380 of the Public Acts of 1965, as amended), the State Treasurer, State of Michigan, is the investment fiduciary for the following four State sponsored retirement systems: Michigan Public School Employees Retirement System, Michigan State Employees Retirement System, Michigan State Police Retirement System, and Michigan Judges Retirement System. Act No. 314 of the Public Acts of 1965, as amended, authorizes the investment of assets of public employee retirement systems or plans created and established by the State or any political subdivision.
INVESTMENT RESULTS
Total Portfolio Results

For the fiscal year ended September 30, 2011, the total Systems rate of return was 6.6% as compiled by State Street Investment Analytics. Annualized rates of return for the three, five, seven, and ten year periods ending September 30, 2011 were: 2.9%, 2.3%, 5.2%, and 5.1% respectively. At the beginning of the 2011 fiscal year, the health of the United States economy was in question. The unemployment rate was 9.7%, GDP was growing only at a 2% annualized rate, and inflation (CPI) was measured at 1.1%. On November 3, 2010 the Federal Open Market Committee (FOMC) determined that a second round of quantitative easing was necessary in order to reduce the unemployment rate and to fight a threat of deflation. The policy, sometimes referred to as QE2, called for a purchase of $600 billion of longer-term Treasury securities by the end of June 30, 2011. The adoption of the policy was controversial and its overall effectiveness is likely to be debated for years to come. However, during the first three quarters of the fiscal year, when QE2 was implemented, the Systems rate of return was 13.6% earning a positive rate of return in each quarter. In February, the 10-Year U.S. Treasury hit its highest yield for the fiscal year at just over 3.7%. Global equity markets peaked in the spring of 2011 and the S&P 500 hit its closing fiscal year high at 1363.61 on April 29, 2011. On March 11, 2011 a massive 9.1-magnitude earthquake struck an area of the Pacific Ocean east of Japan. As a result of the earthquake, a giant tsunami devastated parts of the country. Hit especially hard was the Fukushima Daiichi nuclear power plant, the largest nuclear accident since the 1986 Chernobyl disaster. As a result, many Japanese companies were

MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM 59